The Duplex That Was Financed in Secret
Two years ago you acted jointly for Maya and Dev on their purchase of a duplex, both taking title as tenants in common. Mid-retainer, Dev emailed you privately: he was quietly borrowing $60,000 on his business line of credit to close, and asked you 'not to mention it to Maya.' You said nothing to either of them and the transaction closed. Maya has now discovered a $60,000 collateral mortgage registered against the property, believes Dev concealed it, and wants to sue him for fraud and to set aside the charge. Dev has not consented to anything and has not retained counsel. Maya asks you to act, saying she cannot afford to start over with a new lawyer and that you 'already know everything.'
1. Can you accept Maya's retainer? Set out your analysis.
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No. Work through it in three steps.
1. The joint retainer. Acting for co-clients requires an up-front warning that nothing one of them tells you will be kept secret from the other, and that if a conflict develops you must stop acting for both. Dev's request for secrecy is precisely what that warning exists to prevent; accepting his confidence was an error, but it does not give you a usable asset now.
2. The former-client duty. You may not act against a former client in the same or a related matter where you hold information confidential to that client that is relevant and could be used against them. This is the same transaction, and the disputed fact - how the $60,000 was arranged - is exactly what Dev told you. Even on the view that a properly explained joint retainer leaves nothing confidential between co-clients, that doctrine does not license you to switch sides; the duty of loyalty still bars acting against Dev without informed consent.
3. Consent. Dev's informed consent, after independent advice, is the only theoretical route, and even then you could not use his admission to his prejudice. Realistically it is unobtainable and the conflict is not curable.
Decline in writing, warn Maya about limitation periods, and refer her promptly to independent counsel.
2. Maya asks point-blank what Dev told you about the financing. What may you say, and what must you do with the email?
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You cannot disclose the substance. Confidentiality survives the end of the retainer, and your duty not to use or reveal Dev's information is unaffected by the fact that you are declining the new matter.
You may say: that you cannot discuss communications with a former co-client; that she should retain her own counsel; that she should preserve all closing documents, bank records and correspondence; and that there are limitation periods she cannot afford to miss. You must not hint at the contents, confirm that anything was concealed, or shape her pleading.
Preserve the email and the whole file. Do not delete it because it is now awkward - spoliation and credibility problems will follow, and you may need it to answer a complaint or claim. If you are later served with a summons or court order, get advice before producing anything; do not self-help.
Note also that Maya may be able to obtain the same facts independently - lender records, the mortgage instrument itself - so declining costs her less than it appears.
3. What must you do about Dev and about your own handling of the original joint retainer?
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Treat this as a potential claim, not just a conflict question.
- Tell Dev that Maya intends to sue, that you cannot act for either of them in the dispute, and that he should retain independent counsel immediately. Do not give him substantive advice on the dispute.
- Notify your professional liability insurer of the circumstances now, in writing, before Maya's claim crystallises. Late notice is itself a regulatory and coverage problem.
- Do not alter the file. Make a contemporaneous note of what you advised at the outset of the joint retainer, what you did when Dev asked for secrecy, and what you have now told each of them.
- Consider the underlying error. If you never gave the co-client confidentiality warning, that is both a competence/communication failure and the root of the present conflict; the insurer will want to know, and honesty about it is required.
- Cooperate fully if Maya complains to the regulator. Self-reporting is not automatically required for a possible negligence claim, but a trust shortage or a misrepresentation would be.
4. If Dev later changes his mind and offers written consent to your acting for Maya, does that resolve the problem?
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Not automatically. Consent must be informed and given after independent legal advice, and it cures only the loyalty component of the conflict. It does not give you permission to use Dev's confidential information against him, and the court may still refuse to let you act where your testimony about the joint retainer is likely to be needed.
There is a practical trap: in a fraud claim about concealment, your own conduct - what you knew and what you told each spouse - is likely to be a live issue, possibly requiring your evidence. A lawyer who will be a material witness should not act.
So even with a consent letter, ask: can I run this case without deploying anything Dev told me, and without becoming a witness? If either answer is no, decline. Document the consent inquiry so the regulator and insurer can see you analysed it rather than simply taking the file for the fee.